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Multicriteria Decisionmaking

Analytical Hierarchy Process

Designed to solve complex multicriteria decision problems Requires the decision maker to provide judgements about the relative importance of the criteria Specify a preference for each decision alternative using each criterion Process involves pairwise comparison among criteria and pairwise comparison among decision alternatives Output is prioritized ranking of the decision alternatives based on the overall preferences expressed by the decision maker. Can handle subjective assessment of individuals

An Example- Car Selection Problem

Three alternatives brands A, B &C 4 criteria for evaluation- Price - Mileage - Comfort - Style Price & mileage can be objectively measured Comfort & Style cannot be specified so directly

Step 1 : Developing the Hierarchy Graphically represent the problem in terms of the overall goal, criteria used & the decision alternatives

The Process

Specify judgments about the relative importance of each of the four criteria in terms of its contribution to the overall goal At the next level, the decision maker indicates the preference for each alternative based on each criterion A mathematical process synthesizes the information on the relative importance of the criteria and preferences for the alternatives to provide an overall priority ranking of alternatives

Step 2: Establishing Priorities using AHP

Establishing priorities for the four criteria in terms of how each contributes to the overall goal of selecting the best car Requires the decision maker to state how important each criterion is relative to each other criterion when comparison is done pairwise. In each comparison, one has to select the more important criterion & state how much more important the criterion is.

Pairwise comparison

Verbal description of the relative importance between the two criteria are converted into a numerical rating

Pairwise comparisons made by the decision maker

Pairwise Comparison Matrix

The column Most Important criterion indicate which row of the pairwise comparison matrix the numerical ratings must be placed in.

Complete Pairwise Comparison Matrix

Priority of each criterion in terms of its contribution to the overall goal of selecting the best car.

Step 1

Step 2

Step 3

Consistency Ratio (CR)

Pairwise Comparison of Decision Alternatives

Developing an Overall Priority Ranking

Find the priority value of each car based on each criterion by multiplying the criterion priority with each cars priority Add the values to get the overall priority ranking